Foreign Currency Market Update – GBP / ZAR Update
Over the past week, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 19.0983 to 19.4606. The Rand has been particularly volatile in recent days as it tracks Euro movement. The ongoing geopolitical struggle in Greece has had a marked effect on trader risk sentiment and dampened demand for the emerging-market South African Rand in favour of safe-haven assets. Although Greek Prime Minister Alexis Tsipras made a deal with Eurogroup officials to unlock financial aid, there is growing pessimism that the radical-left Syriza party members will not agree to the deal. This is unsurprising given that the austerity measures Tsipras agreed to are far harsher than those rejected by 61% of the Greek population during the referendum.
In addition to tracking Euro volatility, the Rand declined in response to long-term issues with the nation’s leading energy provider, Eskom. The company has struggled to maintain aging facilities in order to meet growing energy demand. The building of two new facilities has been fraught with complications; not least the lack of funds and staff strikes. Having been denied the opportunity of hiking rates, the company has now approached its suppliers in the hopes of gaining the money required to fix the power grid. Rolling black outs and load shedding has now become common place and has caused the South African economy significant damage.
At the beginning of this week the Rand dived versus its major rivals after hawkish comments from Federal Reserve officials. Fed Chair Janet Yellen suggested that a 2015 rate hike remains a possibility. Byron Wien, vice chairman of the advisory services unit at Blackstone Group LP also predicted a 2015 rate hike, forecasting liftoff in September. The prospect of higher US borrowing costs reduced the appeal of emerging-market currencies such as the South African Rand. The Rand did see a minor appreciation in response to the Greek deal, however, despite growing concern that the deal will not be accepted by the Greek government.
Looking ahead, there is very little by way of South African economic data over the coming week. Wednesday’s Retail Sales report has the potential to provoke changes for the South African asset. However, developments in Europe and the US will likely have the greatest influence on Rand movement. Should Syriza and Germany agree to the deal hashed out by Tsipras and Eurogroup officials, the Rand will advance as it tracks Euro gains. However, any more mention of a Federal Reserve rate hike, especially from Federal Open Market Committee (FOMC) members, will cause the Rand to dive versus its major peers. In terms of the Pound Sterling to South African Rand (GBP/ZAR) exchange rate, British data is likely to have a significant impact. However, British data is also a little thin on the ground for the majority of the week; although Wednesday’s labour market data should be influential.
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 19.2000 to 19.2990 during Tuesday’s European session.
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